The following is a press release from the Alberta government dated March 11, 2010.

Alberta delivers on oil and gas competitiveness

To advance Alberta’s competitiveness in the upstream oil and gas sector, the Alberta government will modify conventional oil and natural gas royalty rates; promote more innovation and use of new technologies; and reduce unnecessary red tape while improving coordination of regulatory processes.

“Alberta is recognized around the world as a leader in technical innovation and development of energy resources,” said Premier Ed Stelmach. “These changes support the Provincial Energy Strategy. They will help us use innovation to unlock our energy resources, create opportunities and jobs in communities large and small across our province and strengthen Alberta's economic recovery.”

In recent years, new drilling technologies have unlocked sizable new reserves in other North American jurisdictions that are now competing for investment. “We can’t pretend that oil and gas investment levels haven’t eroded or that we don’t have a responsibility to current and future generations of Albertans to address that,” said Energy Minister Ron Liepert. “Being competitive has a positive impact far beyond the energy sector. It contributes greatly to our communities, our standard of living, and our prosperity as a province and as individuals.”

Currently almost one in seven Albertans are directly or indirectly employed by the energy industry. Changes to improve Alberta’s competitiveness are expected to create 8,000 jobs in 2011-12 and then 13,000 more jobs annually across the economy. Over the next 25 years conventional oil and gas development in Alberta has the potential to add $2.5 trillion in new economic activity.

“We need to do more to explain to Albertans the ways in which our energy sector drives our economy. Albertans need to have factual and balanced information about how energy development happens in Alberta and just how critical it is to meeting our economic goals,” said Liepert.

The changes being made by government are based on a Competitiveness Review that included an extensive technical analysis of Alberta’s competitive position. This resulted in a number of recommendations for improvement in specific areas.

Fiscal

The key recommendations for royalty adjustments will become effective on a permanent basis for the January 2011 production month.

  • The current incentive program rate of five per cent on new natural gas and conventional oil wells will become a permanent feature of the royalty system, with the current time and volume limits.
  • The maximum royalty rate for conventional oil will be reduced at higher price levels from 50 per cent to 40 per cent to provide better risk-reward balance to investors.
  • Recognizing the fundamental changes to the North American supply/demand balance and increased competition from other jurisdictions, the maximum royalty rate for conventional and unconventional natural gas will be reduced at higher price levels from 50 to 36 per cent.
  • All royalty curves will be finalized and announced by May 31, 2010.
  • The transitional royalty framework for oil and gas introduced in November 2008 will continue until its original announced expiration on December 31, 2013. Effective January 1, 2011, no new wells will be allowed to select the transitional royalty rates. Wells that have already selected the transitional royalty rates will have the option to stay with those rates or switch to the new rates effective January 1, 2011.

Innovation

Innovation will drive our future competitiveness. The government will therefore:

  • explore additional ways to recognize and account for the higher costs of new and advanced technologies needed to develop mature fields; and
  • ensure the development of technologies for enhanced oil and gas recovery remain a priority in the government’s research strategies with industry and academic partners.

Regulatory

The government also accepted recommendations to create a more efficient and effective regulatory system that is based on outcomes.

  • Regulatory bodies will work to better coordinate compliance inspections by October 2010.
  • The Energy Resources Conservation Board (ERCB) will develop new processes around well spacing and confidentiality of data.
  • Parliamentary Assistant to the Minister of Energy, Drayton Valley-Calmar MLA Diana McQueen, will chair a cross-ministry task force to report within 90 days on:
    • implementation of near-term regulatory enhancements;
    • changes to support deployment of innovative, new technologies;
    • and the process for comprehensive review of the regulatory system, with specific milestones and measurable objectives.

 “We need to take a high-level view of the whole regulatory system and keep what’s working, fix what isn’t and get rid of what we no longer need,” said McQueen. “We also want to assure Albertans that our regulatory system will continue to protect the health and safety of Albertans and our natural environment.”

The Competitiveness Review assessed ways that Alberta’s competitive position and share of energy investment have shifted, and identified contributing factors. It also considered how Alberta could improve its ability to attract conventional oil and natural gas investment, in light of market changes and marketplace realities. The unconventional oil sector—oil sands—was not included in the study given the province’s unique position in this area and continued success in attracting significant investment in new and expanding oil sands projects.

The Alberta government’s response document, Energizing Investment, and the complete Project Committee Technical Report and appendix are available at www.energy.alberta.ca

The Provincial Energy Strategy and the Competitiveness Review are key components of the Alberta government’s plan for a strong economic recovery. The Way Forward will bring Alberta back into a surplus position in three years by trimming government spending; using cash reserves to protect key programs; continuing to invest in public infrastructure; and ensuring that our province's industries are competitive and continue to attract investment to provide jobs and prosperity.